Financial Inclusion: A Case of Village Banks in Malawi

Abstract

This study investigates the determinants of household participation in credit markets in Malawi using merged comprehensive data from the Integrated Household Survey. We find that larger family sizes increase the probability of households accessing credit from village banks, and that higher educational levels and residing in urban areas reduce the probability that households tap unchartered sources. In addition, women are more likely to borrow from village banks, while men are more likely to borrow from loan sharks, relatives, and neighbors. Since access to credit has welfare enhancing effects, it is plausible to have policies that encourage to penetrate rural areas.